Lucky at One Mile at a Time writes about the new President of Argentina’s plan to stop subsidizing Aerolineas Argentinas and calls it “an absolutely absurd plan” and “beyond ridiculous.”
President-elect Javier Milei says to stop the bleeding at the airline – it’s lost $8 billion of the government’s money since it was renationalized in 2008 – just transfer ownership to the unions.
Our idea is to hand it over to the employees and for them to do the purification themselves and begin to compete in an open skies policy. Airline personnel are very qualified personnel, the problem lies in political contamination.
The airline’s unions say that without government subsidies, the airline is doomed (“death certificate”) and they want continued handouts.
Lucky acknowledges that “Aerolineas Argentinas is such a bloated and inefficient company.” However argues that the problem is not enough subsidies (“The state has provided enough support to keep the airline alive, but not enough support to actually turn it around.”). He makes further excuses,
Furthermore, the airline has been dealing with many factors outside of its own control, like the massive inflation of the country’s currency, which makes it hard to run an international airline.
Aerolineas Argentinas has been a basket case for decades. Pulling the plug on inefficient state enterprises is part of how Argentina can get inflation and de-growth under control.
He concludes that Aerolineas Argentinas would fail under employee ownership (I’d add that United Airlines did, after all!), but that some of their capacity would likely be replaced. And that the airline should just be shut down – not given to the unions. But if that’s effectively the same thing, why blast the idea?
Let’s be clear about the situation in Argentina. They’re facing 140% inflation and 5% negative GDP growth. Their economy is actually shrinking. Poverty has grown eight-fold in a decade. Just 5% of people lived in poverty in Argentina ten years ago, now 40% do.
This is a country that saw its peak a century ago and has largely been in decline under authoritarian leaders since then.
That’s both why the people of Argentina have finally spoken up for something different, and why drastic policy changes are needed. Argentina can’t subsidize a long haul international airline.
- He campaigned on reducing government spending by 15% and privatizing government-owned companies.
- It’s a condition of the IMF, anyway, which has provided Argentina with twenty two bailouts.
Argentina's new president Javier Milei has big plans for the government. pic.twitter.com/4uUZNKsXsM
— Catch Up (@CatchUpFeed) November 19, 2023
Excessive government spending, combined with easy monetary policy financing that spending, is a key driver of inflation that the country must rein in. The idea that they can continue to subsidize Aerolineas Argentinas with billions of dollars is… absolutely absurd and beyond ridiculous.
However, while his election may represent the ‘burn it down’ impulse that’s been popular among many electorates worldwide over the past decade, Javier Milei’s policy proposals are largely the opposite of MAGA in the United States.
Now, there isn’t zero value in the airline. Aerolineas Argentinas flies 20% of the seat miles from Buenos Aires Ministro Pistarini International Airport (EZE) this month, according to Cirium scheduling data. They’re approximately 32% of seat miles from all Buenos Aires airports. In total 29 airlines offered scheduled flights out of Buenos Aires.
But the task for Argentina is to ensure that the country is attractive enough as a destination for business and tourism that airlines want to fly to the country, and can do so successfully. Obviously ‘handing the airline over to the unions’ which would run it for their own non-economic patronage is not the most likely way to turn around the airline. It’s akin to saying just shut it down.
Note that Milei also says this would be done with Open Skies. Does it matter if Aerolineas Argentinas goes under? Maybe it has to. But there are still planes, gates, and skilled airline workers and a country that’s growing will demand more air travel, not less.
It’s an off the cuff idea on how to overcome political opposition to cutting off funds for the backwards carrier when the new President has very little backing in the legislature. Milei may not be able to sell it even if he could find a buyer. And if economic reforms in the country went well, with reduced inflation and a return to growth, their position is one that could be turned profitable – or one that other operators would turn successful.
Too bad Spain vetoed American Airlines’ acquisition of Aerolineas Argentinas back in 1990.